Understanding Negotiation In Real Estate

Joe Manausa

Joe Manausa Real Estate
850-888-0888
Licensed In: Florida

Joe was requested to present Marketing and Business negotiation topics at the FSU School of Business. He taught a diverse array of material, among them is one point that is vital for those beginning to enter the real estate market.

Leverage In Real Estate Negotiation

The following picture demonstrates the duality of real estate negotiation, and parties typically play one role or the other as depicted below.

Here, we see the Female Negotiator depicted as strong in the negotiation (augmented by the goon to assist) whilst the Male across the table displays uncertainty and unease. 

Your negotiation can vary due to the market condition of your area. A seller’s market, seller will reflect the depiction of the Female in the image above if the home is marketed correctly. Multiple buyers will flock to the home and a lack of inventory (for example in Tallahassee FL inventory of homes priced below $400K), will likely cause multiple offers to be placed.

Converesly, a buyer’s market (similar to Tallahassee’s upper-end) can flip the script in favor of the buyer. Less interest in a home provides the buyer power in the negotiation.

Common Mistakes in Positioning

One of the most common mistakes can stem from both buyers and sellers. It's easy to understand the basics of negotiation, however, typically each party assumes they hold the negotiating power! It's common belief that negotiations are solely between themselves and the other party. Many buyers imagine that they are able to negotiate with a seller as if no other buyers exist. Sellers make the mistake of behaving like the buyer has no other choices in the market.

Historically, it's not uncommon for buyers to submit low offers on listings. Strong negotiators can leverage their offer against them to assist another buyer with slightly higher price to "win". Low-ball buyers in today’s market cannot close deals.

Understanding the supply and demand for your home is key to understanding your method of negotiating.

Supply & Demand of Tallahassee FL Real Estate 

This graph explains the homes for sale in Tallahassee supply and demand by geographical placement and cost range. While a great estimate to use, take precaution when it buying or selling a home and have an agent discuss the details for the particular home in focus, as neighborhoods can have variable market conditions.

Above, the table displays supply of homes in relation to the  demand rate, per months of supply.

The number we should focus on is 6.0. With six months of supply, the market is at essentially equilibrium and thus balanced.

When average supply of homes falls below 6 months of supply, it shifts into a seller’s market. The flip side applies when above 6 months of supply where the market favors buyers.

Far-right on the graph, this column exemplifies the relative supply for the entirety of Tallahassee, while each quadrant of town has been calculated as well.

Market Data Applications in Negotiation Tactics

Do you understand how a seller of an $800K home in NW Tallahassee is in a different market position than a $240K homeowner in NE Tallahassee?

The First is struggling in a lengthy buyer’s market while the Second is in the midst of an booming seller’s market. Using the same negotiation tactics for each seller would likely result in tragedy for at least one seller.

Now, you may understand how one would approach purchasing a $475K home in SE Tallahassee differently than buying a $475K in NE Tallahassee. By understanding the current supply and demand for a home, your negotiating power will forecast what to expect from the other party and how to leverage the deal.

Preparation Saves You Money

One parting thought; I will note that preparation prior to buying or selling a home is not typically enjoyable. Reading market reports and studying supply and demand can be confusing and frustrating. Looking at homes on the market is much more fun.

Preparation matters. If you (and more importantly, your real estate agent) understand daily market trends in Tallahassee, it will land you a much better deal and not leave money on the table when negotiating the sale or purchase of a home.

Original Blog Link: http://blogs.tallahassee.com/community/2020/03/12/position-in-real-estate-negotiation/#